The COVID-19 pandemic has disrupted the world on an unprecedented scale. As the virus spread across continents, the pandemic has had a devastating impact on people, countries, economies and businesses.

According to a report by Bain & Company, the US-China trade war (since 2018) has led to a 15 per cent drop in share price and $ 1 billion erosion in the market cap of a global computer maker. Similarly, Japan's Kumamoto earthquake in April 2016 resulted in a 16 per cent drop in revenue and a 66 per cent drop in net income for a global electronics manufacturer. The consequences of the modern supply chain have been significant and exposed its fragility and structural weaknesses. Supply chain disruptions are costly and might require a considerable amount of time to restore to normalcy.

Supply chain disruptions in India

Indian businesses have also been reeling under the impact of supply chain disruptions. Even as the lockdown is being gradually lifted and industries kickstart their operations, the irregular supply of material coupled with adequate cash flow is causing major bottlenecks across sectors. The manufacturing sector is also grappling with the unavailability of labour.

Supply chains today have become highly sophisticated and vital to the competitiveness of many companies as they impactinput costs. And their interlinked, global nature makes them increasingly vulnerable to a range of risks, with more potential points of failure and less margin of error for absorbing delays and disruptions.

Years of focus on supply chain optimisation to minimise costs, reduce inventories, and drive up asset utilisation have removed vital buffers and reduced flexibility to absorb delays and disruptions. The COVID-19 pandemic has demonstrated how companies are vulnerable to global shocks through their supply chain relationships. Companies that are overly reliant on a single geography or single supplier for key products have borne the brunt of the COVID-19 pandemic.

The global crisis has also exposed hitherto undetected factors such as the lack of visibility across extended supply networks to anticipate risks, lack of systems to understand inventory status, absence of tools to project stock-outs of direct materials and optimise production or to project stock-outs of finished goods to optimise customer allocation, and unavailability of flexible logistics networks to ensure the flow of goods profitably.

SCM: A profit centre

As always, there have been some exceptions. Organisations that invested in building smart supply chains and management systems have successfully bucked the trend. For such organisations, SCM is a profit centre rather than a cost centre. These organisations have developed and implemented supply chain risk management and business continuity strategies over the years. Consequently, they have shown resilience, have been better prepared to mitigate risks, and suffered minimum impact from the pandemic.

Organisations need to invest in five capabilities—network agility, digital collaboration, real-time network visibility, rapid generation of insights, and empowered teams—to create resilient supply chains. Organisations must leverage the disruption to accelerate their strategies tofuture-proof supply chains built on the platform of technologies such as artificial intelligence (AI), machine learning and automation that enables operational efficiency and effective decision making. Technologies such as Internet of Things (IoT), cloud computing, 5G, 3D printing and robotics will increasingly play a critical role in enabling the digital supply network of the future.

The frequency and intensity of shocks to the global economy are increasing. The COVID-19 pandemic has exposed the vulnerability of far-flung supply chains. Forward-thinking organisations must leverage the disruption created in the industry to reinvent their SCM practices and build a future-ready organisation. Companies with a resilient supply chain will be best positioned to weather the next disruptor.

About the Author:
Rajendra Khandalkar is Group Head SCM at Sterling and Wilson.